When an individual gets the benefit of a lower interest rate or better repayment terms, they choose a balance transfer, which allows them to move their existing loan from one lender to another. During this process, the savings that you make depend on the outstanding principal balance, remaining tenure, transfer fee, and other applicable fees. This is why it is advised that, before you make a switch, you compare the entire cost and see if it actually makes any difference.
Introduction
Managing personal loan repayments becomes easy and convenient when the EMIs and interest amount that you are paying are within your budget. When you face a situation where you may find a better offer with a lower rate from another lender, it becomes a practical solution to make a transfer the outstanding loan amount and save on borrowing costs.
In a personal loan balance transfer, borrowers can shift their current loan from one lender to another, where the new lender will pay the outstanding balance to the current one, and you can continue to make repayments under the new loan agreement.
However, in some situations, switching is not always the best solution, even when you are getting funds at a lower rate. This is where it is advised to make a comparison of the savings with all the charges involved before you make the final payment decision.
What Is a Personal Loan Balance Transfer?
A procedure where you move your current debt from your current financial institution to another is referred to as a personal loan balance transfer. Subject to eligibility checks and approvals, the new lender takes over the outstanding principal balance.
Here are some of the balance transfer benefits:
- Shifting your loan to a new lender who is offering funds at a lower rate can help you save a lot.
- Transferring your balance to a new lender decreases the burden of monthly payments.
- If you require extra cash to cover your costs, there are many financial institutions that offer this facility with balance transfers.
- On the basis of your financial goals and budget, you can choose to shorten or extend the repayment tenure.
When Can Switching Lenders Actually Save You Money?
Reducing the overall cost of borrowing is one of the main reasons for transferring your balance. Here are some of the situations where you can consider switching personal loan lenders:
1. You Receive a Significantly Lower Interest Rate
Interest charged on an outstanding principal can be reduced when you are getting an offer at a lower rate. Choosing another offer with a lower interest rate can be useful when you have an amount left to repay with multiple installments.
Make sure you calculate your current interest payable and the one that you are getting, so you can make the right decision. If the difference comes out to be smaller, then transferring won’t be the right choice.
2. A Large Part of Your Loan Is Still Outstanding
Balance transfer becomes much more useful when your repayment stages are in the early or middle stages, meaning the outstanding balance is relatively higher.
You may be able to make limited savings if you have already repaid most of your loan EMIs.
3. Your Credit Profile Has Improved
It is a possibility that consistent payments, a lower credit utilisation ratio, and reduced outstanding debt may have improved your credit score and profile since you first borrowed. An increased credit score can improve and strengthen your financial profile.
And this is why you may get better loan terms from any other lender, after the final assessment made by the lender.
4. You Need More Suitable Repayment Terms
Sometimes the personal loan savings is not always about the interest amount, but a new lender may also offer a tenure that matches your income and expenses.
A longer tenure can reduce your monthly EMIs, and a shorter tenure can reduce total interest payable, so make sure you choose the new schedule if it improves your affordability without making the loan more expensive.
What are the Important Things to Consider When Making a Balance Transfer?
Before you choose to transfer your loan balance, make sure you consider these things:
- Processing and Foreclosure Fee: The savings that you are making from interest on balance transfers must not go towards the payment of additional charges to old or new financial institutions.
- Eligibility Requirements: To make sure a reduced risk, lenders prefer personal loan balance transfers from applicants with a clean repayment history, preferably with consistent and timely EMI payments of at least 12 months and a good CIBIL score.
- Impact on Credit Score: Make sure that when you are looking for a new lender for a balance transfer, it does not create a hard enquiry, which can reduce the score.
Conclusion
Switching personal loan lenders can be useful when the new offer reduces your overall repayment cost after accounting for all charges. However, a lower EMI or interest rate alone is not enough to establish whether a transfer is worthwhile. Compare the outstanding principal, remaining tenure, fees, and total future payments before deciding.
Finnable offers personal loans at competitive rates, flexible repayment tenures, and quick disbursements, subject to eligibility and approval. Itsonline EMI calculator helps estimate repayments, and its free credit score check has no hidden fees or impact on your credit rating.
